sk-money-inflation090917

Canada's inflation rate increased to 1.2 per cent in December, according to Statistics Canada. ((CBC))

Canada's inflation rate quickened somewhat to 1.2 per cent in December, higher than November's level but still low by historical standards.

Statistics Canada said Friday the consumer price index was led higher by gasoline, which was 4.7 per cent more expensive at the end of 2013 than it was at the end of 2012.

The loonie reacted mildly positively to the news, trading up about a quarter of a cent to 90.34 cents US.

Six of the eight categories of items that Statistics Canada tracks the price of were higher.

Prices increased in every province except B.C., where they were flat. 

Loonie inches higher

If pump prices are stripped out, inflation would have come in at 1.1 per cent. 

That's still within the band of between one and three per cent, where the Bank of Canada likes to see the rate stay, but it has been on the lower end of that range for a while.

In its latest interest rate decision, the central bank said it expects inflation to remain subdued for a while yet.

Canada's inflation rate averaged 0.9 per cent last year. That's down from 1.5 per cent in 2012 and the softest rate since during the recession in 2009.

"When we are already below [our inflation] target, as we are today, we care more about downside risks than upside ones," Bank of Canada governor Stephen Poloz said earlier this week.

That's the central bank's way of saying it's less concerned about prices rising to fast, and instead focused on ensuring the economy doesn't slip any further into disinflation or even deflation.

There's a lag time of a few months before the impact of Canada's lower loonie is likely to show itself in inflation data. So economists are expecting the inflation number to come in on the low end of the central bank's target range for the next several months.

"The inching up in year-on-year [inflation] should not give the [central bank] very much solace on inflation," Scotiabank said in a commentary Friday morning.

"We don’t expect annual CPI to remain above 1 per cent for too long," the bank said.